International Trade

Total U.S. exports for 2015 are $1.5 trillion. Automotive products represent 9.15% of that total, or more than $137 billion in 2015. Automakers and suppliers are America’s largest exporters, beating the next best performing manufacturing sector by more than $1125 billion over the past 6 years. In 2015 alone, FCA US, Ford and General Motors exported more than 1 million American-made vehicles to more than 100 different foreign markets.

Top Five U.S. Exporters (2015, in billions)

As America’s largest exporters, FCA US, Ford and General Motors have supported every U.S. free trade agreement ratified. These agreements have reduced tariffs and eliminated numerous non-tariff trade barriers in key markets. The Trans-Pacific Partnership (TPP) could generate similar benefits for U.S. exporters, but only if key issues are addressed:

Eliminate all auto non-tariff barriers in all TPP-member countries.

Include strong, enforceable currency manipulation disciplines (This is vital, due to Japan’s participation in the TPP).

Currency Manipulation by Japan undermines global competition in three ways:

Makes it harder to export American vehicles to Japan;

Provides Japanese automakers with an unfair competitive advantage in the United States; and,

Makes it harder for American companies to compete with Japanese automobiles in other markets, like South America, China, Europe and the Middle East.

AAPC developed a proposal supported by leading non-partisan trade experts that is based on International Monetary Fund commitments already agreed to by all TPP member countries. It asks three simple questions to determine if a TPP member manipulates its currency:

Did the TPP member have a current account surplus over the six-month period in question?

Did it add to its foreign exchange reserves over that same six-month period?

Are its foreign exchange reserves more than sufficient (i.e., greater than three months normal imports)?

If a TPP member is found to have breached its currency commitments under the agreement, the other TPP members shall be entitled to suspend the tariff benefits of the agreement with respect to the violating TPP member.

In an industry where automakers earn about $1,500 on a typical vehicle, Japan’s undervalued currency represents thousands of dollars per vehicle.

Weak Yen Subsidy Per Car in U.S.

Based on the October 1, 2012 rate of 78 yen/$, when Abenomics started.
3-4% profit margin on sedan. Source: McKinsey & Company, 2003 Preface to the Auto Sector Cases

If the new Congress can agree on anything this year, it may well be the Trans-Pacific Partnership, a trade deal between the United States and 11 other countries throughout the Asia-Pacific region. Passions run high when it comes to trade deals these days, and the Obama administration is working hard to sell it to labor unions, which roundly oppose it.

Negotiations over the proposed Trans-Pacific Partnership (TPP) free trade agreement are continuing this week in Washington, but some economists say the talks shouldn’t be limited to traditional trade barriers like tariffs.

According to Market Pulse, among the issues on the agenda are “intellectual property and reform of state-owned firms to establish fair business competition,” as well as bilateral issues, “such as Japan’s proposed exceptional tariffs on some agricultural produce.”

The Obama administration will fall well short of its goal of doubling exports in five years. But it is hoping to secure a longer-run victory on the trade front with sweeping new agreements in the next two years.